What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-05-03 · 105 added, 155 removed, 252 unchanged (51% of the section changed)

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Forward-looking statements include statements, but are not limited to statements such as:

• Financial projections and expectations, including profitability of certain business units, plans to reduce costs and improve efficiencies including through restructuring programs, the effects of seasonality on certain business units, continued reliance on key customers for a significant portion of our revenue, future sources of revenue, competition and pricing pressures, the future impact of certain accounting pronouncements, and our estimation of the potential impact and materiality of litigation;

• Financial projections and expectations, including profitability of certain business units, plans to reduce costs and improve efficiencies including through restructuring programs, the effects of seasonality on certain business units, the consolidation of the communication industry and continued reliance on key customers for a significant portion of our revenue, future sources of revenue, competition and pricing pressures, the future impact of certain accounting pronouncements, and our estimation of the potential impact and materiality of litigation;

• Sufficiency of our sources of funding for working capital, capital expenditures, contractual obligations, acquisitions, stock repurchases, debt repayments and other matters;

• Our expectations regarding demand for our products and services, including industry trends and technological advancements that may drive such demand, the role we will play in those advancements and our ability to benefit from such advancements;

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• Our expectations related to future tax liabilities resulting from future tax legislation;

and the ongoing military conflict between Russia and Ukraine and armed conflict between Israel and Hamas, on our business, operations and financial results.

• Our expectations related to macro-economic conditions, including the impact of inflation, fiscal tightening at central banks, changes in foreign exchange rates, the risk of increased tensions and trade actions between China and the U.S., the ongoing conflict between Russia and Ukraine and the ongoing conflict between Israel and Hamas and the expansion of conflict in the Middle East, including in Lebanon and with Iran, on our business, operations and financial results.

Management cautions that forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements.

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We are under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results or to changes in our expectations.

In addition, Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 1, 2023.

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

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• Optical Security and Performance Products (OSP).

During the third quarter of fiscal 2024, the VIAVI business environment continued to be challenging, particularly in the service provider and enterprise customer markets, partially offset by stronger OSP demand.

During the first quarter of fiscal 2025, the VIAVI business environment continued to be challenging, particularly in the North American service provider and enterprise customer markets.

NE product demand continues to be impacted by reduced research and development (R&D) and production capital expenditure spend by major wireless network equipment manufacturers (NEMs), offset by OSP performance.

Our financial results and long-term growth model will continue to be driven by revenue growth, non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share (EPS) and cash flow from operations.

We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.

Proposed Acquisition of Spirent

On March 5, 2024, we announced a transaction under which the Company and VIAVI Solutions Acquisitions Limited, our wholly-owned subsidiary (Bidco), intends to acquire the entire issued and to be issued ordinary share capital o f Spirent Communications plc, a public company incorporated in England and Wales and a global provider of automated test and assurance solutions for networks, cybersecurity and positioning (Spirent, and such transaction, the Proposed Acquisition).

The Proposed Acquisition is to be implemented by means of a court-sanctioned scheme of arrangement under the United Kingdom (U.K.) Companies Act 2006, as amended (the VIAVI Offer Scheme).

Under the terms of the Proposed Acquisition, Spirent shareholders, in connection with the consummation of the VIAVI Offer Scheme, would receive 172.5 pence per ordinary Spirent share in cash and would also be entitled to retain a special dividend of 2.5 pence per ordinary Spirent share .

The Proposed Acquisition was approved by our Board of Directors and was recommended by the board of directors of Spirent.

The Proposed Acquisition is conditioned upon, among other things, (i) certain meetings of the shareholders of Spirent to approve the VIAVI Offer Scheme being held no later than May 23, 2024, (ii) the VIAVI Offer Scheme being approved by the requisite majorities of Spirent shareholders at such meetings, (iii) the receipt of applicable antitrust and other regulatory clearances, and, following the satisfaction or waiver of all other conditions, (iv) the sanction of the VIAVI Offer Scheme by the High Court of Justice in England and Wales.

On March 28, 2024, Spirent announced that it had received from another bidder a competing offer (the Competing Offer) at a higher nominal price per share of Spirent than that reflected in the Proposed Acquisition and that the board of directors of Spirent had withdrawn its recommendation of the Proposed Acquisition and instead had recommended Spirent shareholders vote in favor of the Competing Offer.

The Competing Offer is conditioned on, among other things, the receipt of applicable antitrust and other regulatory clearances.

On April 17, 2024, Spirent announced the indefinite adjournment of the meetings of the shareholders of Spirent relating to the VIAVI Offer Scheme, which were scheduled to be held on May 1, 2024.

If those meetings are not held by May 23, 2024, the VIAVI Offer Scheme will lapse, unless VIAVI elects to waive the relevant condition to the Proposed Acquisition or such deadline is extended with the consent of the U.K.

Panel on Takeovers and Mergers.

For more information on the risks related to the Proposed Acquisition, see Part II, Item 1A, Risk Factors, of this Quarterly Report.

Looking Ahead

We continue to be impacted by macroeconomic conditions and volatility in end market demand.

As we look ahead to the fourth quarter of fiscal 2024, we expect revenue to be flat to slightly higher as our normal seasonal growth is expected to be adversely impacted by a continued conservative spend environment.

Despite near-term macroeconomic headwinds, our long-term focus remains on executing our strategic priorities to drive revenue and earnings growth, capture market share and continue to optimize our capital structure.

We remain positive on our long-term growth drivers in Wireless, Fiber, 3D sensing and Position, Navigation and Timing (PNT).

We will continue to focus on executing our strategic priorities over the long-term to:

As we look forward to the second quarter of fiscal 2025, we are seeing many of our end markets show signs of stabilization which we believe indicates the beginning of a gradual recovery and expect this to continue in the second half of fiscal 2025.

Our long-term focus remains on executing against our strategic priorities to drive revenue and earnings growth, capture market share and continue to optimize our capital structure.

We remain positive on our long-term growth drivers and will continue to focus on executing our strategic priorities over the long-term to:

• Defend and consolidate leadership in core business segments;

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• Extend VIAVI technologies and platforms into adjacent markets and applications;

• Continued productivity improvements in Operations, Research & Development (R&D) and Selling, General and Administrative (SG&A).

• Continue productivity improvements in Operations, R&D and Selling, General and Administrative (SG&A).

Financial Highlights

Third quarter fiscal 2024 results included the following notable items:

First quarter fiscal 2025 results included the following notable items:

• Net revenue of $238.2 million, down $9.7 million or 3.9% year-over-year.

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• Non-GAAP operating margin of 10.0%, down 240 bps year-over-year.

• GAAP net loss of $1.8 million, down $11.6 million or 118.4% year-over-year.

• Non-GAAP net income of $12.4 million, down $7.1 million or 36.4% year-over-year.

• GAAP diluted EPS of $(0.01), down $0.05 or 125.0% year-over-year.

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A reconciliation of GAAP financial measures to Non-GAAP financial measures is provided below (in millions, except EPS amounts) :

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

Operating (Loss) Income Operating Margin Operating (Loss) Income Operating Margin Operating Income Operating Margin Operating Income Operating Margin

Three Months Ended

September 28, 2024 September 30, 2023

Operating Income Operating Margin Operating Income Operating Margin

GAAP measures $ 11.5 4.8 % $ 16.0 6.5 %

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Change in fair value of contingent liability (3.5) (1.5) % (1.4) (0.6) %

Other charges (benefits) unrelated to core operating performance (1)

Acquisition and integration related charges 0.6 0.3 % — — %

Other (benefits) charges unrelated to core operating performance (1)

(0.5) (0.2) % 0.2 0.1 %

Amortization of intangibles 4.4 1.8 % 5.6 2.2 %

Restructuring and related charges (benefits) 0.1 — % 10.2 4.1 % (0.8) (0.1) % 10.2 1.2 %

Restructuring and related benefits — — % (0.8) (0.3) %

Litigation settlement (1.3) (0.5) % — — %

Total related to Cost of Revenue and Operating Expenses 12.4 5.2 % 14.8 5.9 %

Non-GAAP measures $ 23.9 10.0 % $ 30.8 12.4 %

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

Net (Loss) Income Diluted EPS Net (Loss) Income Diluted EPS Net (Loss) Income Diluted

Three Months Ended

September 28, 2024 September 30, 2023

Net (Loss) Income Diluted

EPS Net Income Diluted

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Change in fair value of contingent liability (3.5) (0.01) (1.4) —

Other charges (benefits) unrelated to core operating performance (1)

Acquisition and integration related charges 0.6 — — —

Other (benefits) charges unrelated to core operating performance (1)

(0.5) — 0.2 —

Amortization of intangibles 4.4 0.02 5.6 0.02

Restructuring and related charges (benefits) 0.1 — 10.2 0.04 (0.8) (0.01) 10.2 0.05

Gain on litigation settlement (2)

— — — — (7.3) (0.03) — —

Restructuring and related benefits — — (0.8) —

Litigation settlement (1.3) (0.01) (7.3) (0.03)

Non-cash interest expense and other expense 1.1 0.01 1.2 0.01

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Shares used in per share calculation for Non-GAAP EPS 224.0 224.2

(1) Other charges (benefits) unrelated to core operating performance primarily consisting of certain acquisition and integration related charges, legal costs, accretion of debt discount and loss on disposal of long-lived assets.

During the three and nine months ended March 30, 2024, Other charges include expenses related to the proposed acquisition of Spirent.

(2) Gain on litigation settlement recorded to Interest and other income, net in the Consolidated Statements of Operations for the nine months ended March 30, 2024.

(1) Included in the three months ended September 28, 2024 is a gain of $0.9 million on the sale of assets previously classified as held for sale and other charges unrelated to core operating performance of $0.4 million.

Use of Non-GAAP (Adjusted) Financial Measures

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Accordingly, management excludes from core operating performance items such as those relating to certain purchase price accounting adjustments, amortization of acquisition-related intangibles, stock-based compensation, legal settlements, restructuring, changes in fair value of contingent consideration liabilities and certain investing and acquisition related expenses and other activities that management believes are not reflective of such ordinary, ongoing and core operating activities.

The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company’s core operational performance.

The Company believes providing this additional information allows investors to see Company results through the eyes of management.

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The GAAP measure most directly comparable to non-GAAP net income is net income.

The GAAP measure most directly comparable to non-GAAP EPS is net income per share.

The GAAP measure most directly comparable to non-GAAP EPS is earnings per share.

The Company believes these GAAP measures alone are not fully indicative of its core operating expenses and performance and that providing non-GAAP financial measures in conjunction with GAAP measures provides valuable supplemental information regarding the Company’s overall performance.

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The following table summarizes selected Consolidated Statements of Operations items ( in millions, except for percentages ):

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 Change Percent Change March 30, 2024 April 1, 2023 Change Percent Change

Three Months Ended

September 28, 2024 September 30, 2023 Change Percent Change

Segment net revenue:

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Percentage of net revenue 0.5 % 0.8 %

Restructuring and related charges (benefits) $ 0.1 $ 10.2 $ (10.1) (99.0) % $ (0.8) $ 10.2 $ (11.0) (107.8) %

Percentage of net revenue — % 4.1 % 0.1 % 1.2 %

Loss on convertible note modification $ — $ (2.2) $ 2.2 (100.0) % $ — $ (2.2) $ 2.2 (100.0) %

Restructuring and related benefits $ — $ (0.8) $ 0.8 (100.0) %

Percentage of net revenue — % 0.3 %

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Consequently, the following discussion of business segment performance focuses on total net revenue, gross profit, and operating income consistent with our approach for managing the business.

Three and Nine Months Ended March 30, 2024 and April 1, 2023

Net revenue decreased by $1.8 million, or 0.7%, during the three months ended March 30, 2024 compared to the same period a year ago.

This decrease reflects the continuing weakness in service provider spending partially offset by higher anti-counterfeiting revenue.

Net revenue decreased by $94.1 million, or 11.2%, during the nine months ended March 30, 2024 compared to the same period a year ago.

This decrease reflects the continuing weakness in service provider spending and lower anti-counterfeiting revenue.

Product revenues increased by $2.1 million, or 1.0%, during the three months ended March 30, 2024 compared to the same period a year ago, driven by revenue increases in our OSP and NE segments offset by revenue decrease in our SE segment.

Product revenues decreased by $90.6 million, or 12.7%, during the nine months ended March 30, 2024 compared to the same period a year ago, driven by revenue decreases in all segments.

Service revenues decreased by $3.9 million, or 9.2% and $3.5 million, or 2.7% during the three and nine months ended March 30, 2024, respectively, compared to the same periods a year ago.

Three Months Ended September 28, 2024 and September 30, 2023

Net revenue decreased by $9.7 million, or 3.9%, during the three months ended September 28, 2024 compared to the same period a year ago.

This decrease reflects the continuing weakness in service provider spending partially offset by higher consumer and industrial, government and anti-counterfeiting revenue.

Product revenues decreased by $8.1 million, or 3.9%, during the three months ended September 28, 2024 compared to the same period a year ago, driven by revenue decreases in our NE and SE segments partially offset by revenue increases in our OSP segment.

Service revenues decreased by $1.6 million, or 3.8% during the three months ended September 28, 2024, respectively, compared to the same periods a year ago.

This was driven by revenue decreases from our NE and SE segments.

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(a) pricing pressures due to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-based competitors, and a general commoditization trend for certain products;

(b) product mix variability in our markets, which affects revenue and gross margin;

(d) the current trend of communication industry consolidation, which is expected to continue, that directly affects our NE and SE customer bases and adds additional risk and uncertainty to our financial and business projections;

(e) chip component shortages, supply chain and shipping logistic constraints;

(b) strategic execution challenges arising from competition with larger and more well-resourced competitors;

(d) fluctuations in customer buying patterns, which cause demand, revenue and profitability volatility;

(e) the current trend of communication industry consolidation, which is expected to continue, that directly affects our NE and SE customer bases and adds additional risk and uncertainty to our financial and business projections;

(f) the impact of ongoing global trade policies, tariffs and sanctions;

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The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded 10% of our total net revenue ( in millions ):

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

Three Months Ended

September 28, 2024 September 30, 2023

United States $ 73.0 30.6 % $ 82.8 33.4 %

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Total net revenue $ 238.2 100.0 % $ 247.9 100.0 %

Net revenue from customers outside the Americas during the three and nine months ended March 30, 2024 represented 64.1% and 61.0% of net revenue, respectively.

Net revenue from customers outside the Americas during the three and nine months ended April 1, 2023 represented 59.5% and 60.9% of net revenue, respectively.

Net revenue from customers outside the Americas represented 62.8% and 59.5% of net revenue, respectively, during the three months ended September 28, 2024 and September 30, 2023.

We expect revenue from customers outside of the United States to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities.

Amortization of Acquired Technologies (Cost of revenues)

Amortization of acquired technologies within Cost of revenues decreased $2.4 million or 40.7% and $8.3 million or 44.4% during the three and nine months ended March 30, 2024, respectively, compared to the same periods a year ago.

These decreases are primarily due to certain intangible assets becoming fully amortized in fiscal 2023 offset in part by amortization of intangibles acquired through acquisitions in fiscal 2023.

Gross margin decreased by 0.8 percentage points during the three months ended March 30, 2024 from 56.9% in the same period a year ago to 56.1% in the current period.

The decrease was primarily due to gross margin reduction in all segments, as discussed below in the Operating Segment Information section.

Gross margin decreased by 1.0 percentage point during the nine months ended March 30, 2024 from 58.5% in the same period a year ago to 57.5% in the current period.

The decrease was primarily due to gross margin reduction in all segments, as discussed below in the Operating Segment Information section.

Amortization of acquired technologies within Cost of revenues decreased $0.2 million or 5.7% during the three months ended September 28, 2024 compared to the same period a year ago.

This decrease is primarily due to certain intangible assets becoming fully amortized in fiscal 2024.

Gross margin decreased by 1.1 percentage points during the three months ended September 28, 2024 from 58.2% in the same period a year ago to 57.1% in the current period.

The decrease was primarily due to gross margin reduction in NE and SE, partially offset by gross margin increase in OSP, as discussed below in the Operating Segment Information section.

As discussed in more detail under “Net Revenue” above, we sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive (increasingly due to Asia-Pacific-based competition), are price sensitive and/or are affected by customer seasonal and mix variant buying patterns.

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Research and Development

R&D expense decreased by $0.8 million, or 1.6% during the three months ended March 30, 2024 compared to the same period a year ago.

This decrease was primarily due to benefits from our restructuring activities.

As a percentage of net revenue, R&D expense decreased by 0.2 percentage points during the three months ended March 30, 2024 compared to the same period a year ago.

R&D expense decreased by $5.9 million, or 3.8% during the nine months ended March 30, 2024 compared to the same period a year ago.

R&D expense decreased by $0.5 million, or 1.0% during the three months ended September 28, 2024 compared to the same period a year ago.

This decrease was primarily due to benefits from our restructuring activities.

As a percentage of net revenue, R&D expense increased by 1.6 percentage points during the nine months ended March 30, 2024 compared to the same period a year ago.

As a percentage of net revenue, R&D expense increased by 0.6 percentage points during the three months ended September 28, 2024 compared to the same period a year ago.

We believe that continuing our investments in R&D is critical to attaining our strategic objectives.

We plan to continue to invest in R&D and new products that will further differentiate us in the marketplace.

One such investment is the VIAVI Automated Lab-as-a-Service for Open RAN (VALOR), which became fully operational in the second quarter of fiscal 2025.

Selling, General and Administrative

SG&A expense increased by $18.2 million, or 22.8%, during the three months ended March 30, 2024 compared to the same period a year ago.

This increase was due to expenses related to the proposed acquisition of Spirent, the change in fair value of acquisition-related contingent consideration and reversal of variable compensation that benefited the same period a year ago.

These increases were partially offset by benefits from our restructuring activities.

As a percentage of net revenue, SG&A increased 7.6 percentage points during the three months ended March 30, 2024 compared to the same period a year ago.

SG&A expense of $250.2 million during the nine months ended March 30, 2024 was flat when compared to the same period a year ago.

This was primarily due to expenses related to the proposed acquisition of Spirent offset by benefits from our restructuring activities and the change in fair value of acquisition-related contingent consideration.

As a percentage of net revenue, SG&A increased 3.7 percentage points during the nine months ended March 30, 2024 compared to the same period a year ago.

SG&A expense decreased by $3.1 million, or 4.0%, during the three months ended September 28, 2024 compared to the same period a year ago.

This decrease was primarily due to the change in fair value of acquisition-related contingent consideration and the gain on litigation settlement partially offset by higher variable expenses.

As a percentage of net revenue, SG&A was flat during the three months ended September 28, 2024 compared to the same period a year ago.

Amortization of Intangibles (Operating expenses)

Amortization of intangibles within Operating expenses decreased $0.6 million or 28.6% and $1.5 million or 23.1% during the three and nine months ended March 30, 2024, respectively, compared to the same periods a year ago.

These decreases are primarily due to certain intangible assets becoming fully amortized in fiscal 2023 offset in part by amortization of intangibles acquired through acquisitions in fiscal 2023.

Amortization of intangibles within Operating expenses decreased $1.0 million or 47.6% during the three months ended September 28, 2024 compared to the same period a year ago.

This decrease is primarily due to certain intangible assets becoming fully amortized in fiscal 2024.

Restructuring

The Company’s restructuring events are primarily intended to reduce costs, consolidate operations, integrate various acquisitions, streamline product manufacturing and address market conditions.

During the second quarter of fiscal 2023, Management approved a restructuring and workforce reduction plan (the Fiscal 2023 Plan) to better align the Company’s workforce with current business needs and strategic growth opportunities.

The Fiscal 2023 Plan, which affected approximately 5% of the Company's workforce, resulted in an estimated annualized gross cost savings of approximately $25.0 million excluding any one-time charges as a result of the restructuring activities.

The first phase of the Fiscal 2023 Plan impacted all segments and corporate functions and was substantially complete as of March 30, 2024.

The second phase of the Fiscal 2023 Plan is primarily focused on reducing costs in our SE segment and the Company anticipates this phase to be substantially complete by the end of fiscal 2024.

During the fourth quarter of fiscal 2024, management approved a restructuring and workforce reduction plan (the Fiscal 2024 Plan) across various functions intended to improve operational efficiencies and better align the Company’s workforce with current business needs.

The Company expects approximately 6% of its global workforce to be affected, impacting all segments and corporate functions.

We estimate annualized gross cost savings of approximately $25.0 million excluding any one-time charges as a result of the restructuring activities initiated under the Fiscal 2024 Plan.

The Company anticipates the Fiscal 2024 Plan to be substantially complete by the end of fiscal 2025.

The restructuring and workforce reduction plan initiated in the second quarter of fiscal 2023 (the Fiscal 2023 Plan) across various functions to better align the Company’s workforce with current business needs and strategic growth opportunities was completed in the first quarter of fiscal 2025.

The Fiscal 2023 Plan affected approximately 5% of the Company's workforce and resulted in an estimated annualized gross cost savings of approximately $25.0 million excluding any one-time charges.

As of September 28, 2024, our total restructuring accrual was $6.8 million.

During the three months ended September 28, 2024, the Company recorded restructuring charges of $0.2 million related to the Fiscal 2024 Plan and benefits of $0.2 million related to the Fiscal 2023 Plan.

During the three months ended September 30, 2023, the Company recorded benefits of $0.8 million related to the Fiscal 2023 Plan.

We estimate future cash payments of $6.8 million under the Fiscal 2024 Plan, funded by operating cash flow.

During the three and nine months ended March 30, 2024, the Company recorded restructuring charges of $0.1 million and benefits of $0.8 million, respectively, related to the Fiscal 2023 Plan.

Refer to “Note 13.

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Interest and other income, net

Interest and other income, net, was $4.0 million during the three months ended March 30, 2024 compared to $1.6 million during the same period a year ago.

This $2.4 million increase was primarily driven by higher interest income during the current period.

Interest and other income, net, was $18.0 million during the nine months ended March 30, 2024 compared to $4.9 million during the same period a year ago.

This $13.1 million increase was primarily driven by higher interest income during the current period and a legal settlement in our favor in the amount of $7.3 million partially offset by an unfavorable foreign exchange impact as the balance sheet hedging program provided a less favorable offset to the remeasurement of underlying foreign exchange exposures during the current period.

Interest and other income, net, was $3.2 million during the three months ended September 28, 2024 compared to $10.2 million during the same period a year ago.

This $7.0 million decrease was primarily driven by a legal settlement in our favor in the amount of $7.3 million in the prior period.

Interest Expense

Interest expense increased by $1.0 million, or 14.9% and $4.4 million, or 23.2% during the three and nine months ended March 30, 2024, respectively, compared to the same periods a year ago.

These increases were primarily driven by the accretion of debt discount and interest expense on the Senior Convertible Notes due 2026 as a result of the issuance in March 2023.

Interest expense decreased by $0.3 million, or 3.8% during the three months ended September 28, 2024 compared to the same period a year ago.

This decrease was primarily driven by lower outstanding debt when compared to the prior period.

Provision for Income Taxes

We recorded an income tax provision of $9.0 million and $25.2 million for the three and nine months ended March 30, 2024, respectively.

We recorded an income tax provision of $6.0 million and $28.7 million for the three and nine months ended April 1, 2023, respectively.

The income tax provision for the three and nine months ended March 30, 2024 and April 1, 2023 primarily relates to income tax in certain foreign and state jurisdictions based on our forecasted pre-tax income or loss.

We recorded an income tax provision of $9.0 million and $8.6 million for the three months ended September 28, 2024 and September 30, 2023, respectively.

The income tax provision for the three months ended September 28, 2024 and September 30, 2023 primarily relates to income tax in certain foreign and state jurisdictions based on our forecasted pre-tax income or loss.

The income tax provision recorded differs from the expected tax provision that would be calculated by applying the federal statutory rate to our income from continuing operations before taxes primarily due to changes in the valuation allowance for deferred tax assets attributable to our domestic and foreign income from continuing operations.

As of March 30, 2024, and July 1, 2023, our unrecognized tax benefits totaling $51.1 million are included in deferred taxes and other non-current tax liabilities, net.

We had $3.4 million accrued for the payment of interest and penalties as of March 30, 2024.

As of September 28, 2024, and June 29, 2024, our unrecognized tax benefits (net of Federal benefits) totaled $50.8 million and $50.7 million, respectively, and are included in deferred taxes and other non-current tax liabilities.

We had $4.0 million accrued for the payment of interest and penalties as of September 28, 2024.

The timing and resolution of income tax examinations are uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued for each year.

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Information related to our operating segments was as follows (in millions) :

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 Change Percentage Change March 30, 2024 April 1, 2023 Change Percentage Change

Three Months Ended

September 28, 2024 September 30, 2023 Change Percentage Change

Network Enablement

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Network Enablement

NE net revenue decreased by $0.2 million, or 0.1% during the three months ended March 30, 2024 compared to the same period a year ago, primarily driven by lower volume in Fiber and Access and Lab and Production, partially offset by higher Wireless and AvComm revenue.

NE net revenue decreased by $74.5 million, or 14.0% during the nine months ended March 30, 2024 compared to the same period a year ago, primarily driven by lower volume in Wireless, Fiber and Access and Lab and Production partially offset by higher AvComm revenue.

NE gross margin decreased by 0.7 percentage points during the three months ended March 30, 2024 to 61.5% from 62.2% in the same period a year ago primarily due to lower volume and unfavorable product mix.

NE gross margin decreased by 1.4 percentage points during the nine months ended March 30, 2024 to 62.4% from 63.8% in the same period a year ago primarily due to lower volume and unfavorable product mix.

NE net revenue decreased by $8.4 million, or 5.6% during the three months ended September 28, 2024 compared to the same period a year ago, primarily driven by lower volume in Fiber and Access and Lab and Production and Wireless, partially offset by higher AvComm revenue.

NE gross margin decreased by 2.2 percentage points during the three months ended September 28, 2024 to 60.9% from 63.1% in the same period a year ago primarily due to lower volume and unfavorable product mix.

Service Enablement

SE net revenue decreased by $7.3 million, or 28.7%, during the three months ended March 30, 2024 compared to the same period a year ago primarily due to lower Data Center and Assurance revenue.

SE net revenue decreased by $9.0 million, or 12.6%, during the nine months ended March 30, 2024 compared to the same period a year ago primarily due to lower Data Center and Assurance revenue.

SE gross margin decreased by 9.3 percentage points during the three months ended March 30, 2024 to 60.8% from 70.1% in the same period a year ago primarily due to lower volume.

SE gross margin decreased by 0.9 percentage points during the nine months ended March 30, 2024 to 66.0% from 66.9% in the same period a year ago primarily due to unfavorable product mix.

SE net revenue decreased by $2.6 million, or 12.7%, during the three months ended September 28, 2024 compared to the same period a year ago primarily due to lower Data Center and Assurance revenue.

SE gross margin decreased by 6.5 percentage points during the three months ended September 28, 2024 to 60.7% from 67.2% in the same period a year ago primarily due to lower volume.

Network and Service Enablement

NSE operating margin decreased by 3.2 percentage points during the three months ended March 30, 2024 to (1.8)% from 1.4% in the same period a year ago primarily due to lower volume.

NSE operating margin decreased by 7.4 percentage points during the nine months ended March 30, 2024 to 0.9% from 8.3% in the same period a year ago primarily due to lower volume.

NSE operating margin decreased by 5.5 percentage points during the three months ended September 28, 2024 to (4.6)% from 0.9% in the same period a year ago primarily due to lower volume.

Optical Security and Performance Products

OSP net revenue increased by $5.7 million, or 8.1%, during the three months ended March 30, 2024 compared to the same period a year ago.

This increase was primarily driven by higher anti-counterfeiting and consumer and industrial revenues partially offset by lower government revenue.

OSP net revenue decreased by $10.6 million, or 4.4%, during the nine months ended March 30, 2024 compared to the same period a year ago.

This decrease was primarily driven by lower anti-counterfeiting, consumer and industrial and government revenues.

OSP gross margin decreased by 0.5 percentage points during the three months ended March 30, 2024 to 50.1% from 50.6% in the same period a year ago primarily due to the reversal of variable compensation that benefited the year ago period.

OSP gross margin decreased by 1.9 percentage points during the nine months ended March 30, 2024 to 51.6% from 53.5% in the same period a year ago primarily due to lower volume and unfavorable manufacturing variances.

OSP operating margin decreased by 2.3 percentage points during the three months ended March 30, 2024 to 34.3% from 36.6% in the same period a year ago primarily due to the aforementioned reduction in gross margin.

OSP operating margin decreased by 2.2 percentage points during the nine months ended March 30, 2024 to 36.2% from 38.4% in the same period a year ago primarily due to the aforementioned reduction in gross margin.

OSP net revenue increased by $1.3 million, or 1.7%, during the three months ended September 28, 2024 compared to the same period a year ago.

This increase was primarily driven by higher consumer and industrial, government and anti-counterfeiting revenue.

OSP gross margin increased by 2.8 percentage points during the three months ended September 28, 2024 to 55.3% from 52.5% in the same period a year ago primarily due to manufacturing volume.

OSP operating margin increased by 1.8 percentage points during the three months ended September 28, 2024 to 39.6% from 37.8% in the same period a year ago primarily due to the aforementioned increase in gross margin.

Liquidity and Capital Resources

We believe our existing liquidity and sources of liquidity, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet our liquidity needs, including but not limited to, contractual obligations, working capital and capital expenditure requirements, financing strategic initiatives, fund debt maturities, and execution of purchases under our share repurchase program over the next twelve months and beyond.

We believe our existing liquidity and sources of liquidity, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet our liquidity needs, including but not limited to, contractual obligations, working capital and capital expenditure requirements, financing strategic initiatives, funding debt maturities, and executing purchases under our share repurchase program over the next twelve months and beyond.

However, there are a number of factors that could positively or negatively impact our liquidity position, including:

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• Possible investments or acquisitions of complementary businesses, products or technologies;

• While the principal payment obligations of our 1.625% Senior Convertible Notes due 2026 and our 3.75% Senior Notes due 2029 (together the “Notes”) are substantial and have covenants that restrict our debt level and credit facility capacity, we may be able to incur substantially more debt;

• Principal payment obligations of our 1.625% Senior Convertible Notes due 2026, and our 3.75% Senior Notes due 2029 (together the Notes) and covenants that restrict our debt level and credit facility capacity;

• Issuance or repurchase of debt which may include open market purchases of our 2026 Notes and/or 2029 Notes prior to their maturity;

• Issuance or repurchase of our common stock or other equity securities;

• Factors beyond our control that may impact timing of and/or appropriation of government funding for certain of our strategic research and development programs;

• Potential funding of pension liabilities either voluntarily or as required by law or regulation;

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Unrealized gains and losses on available-for-sale investments are recorded as Other comprehensive (loss) income and reported as a separate component of stockholders’ equity.

As of March 30, 2024, U.S.

As of September 28, 2024, U.S.

subsidiaries owned approximately 19.9% of our cash and cash equivalents, short-term investments and restricted cash.

As of March 30, 2024, the majority of our cash investments have maturities of 90 days or less and are of high credit quality.

As of September 28, 2024, the majority of our cash investments have maturities of 90 days or less and are of high credit quality.

Nonetheless we could realize investment losses under adverse market conditions.

During the three months ended March 30, 2024, we have not realized material investment losses but we can provide no assurance that the value or liquidity of our investments will not be impacted by adverse conditions in the financial markets.

During the three months ended September 28, 2024, we have not realized material investment losses but we can provide no assurance that the value or liquidity of our investments will not be impacted by adverse conditions in the financial markets.

In addition, we maintain cash balances in operating accounts with third-party financial institutions.

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The Credit Agreement also provides that, under certain circumstances, we may increase the aggregate amount of revolving commitments thereunder by an aggregate amount of up to $100.0 million so long as certain conditions are met.

As of March 30, 2024, we had no borrowings under this facility and our available borrowing capacity was approximately $147.5 million, net of outstanding standby letters of credit of $4.1 million.

As of September 28, 2024, we had no borrowings under this facility and our available borrowing capacity was approximately $143.7 million, net of outstanding standby letters of credit of $4.2 million.

Refer to “Note 11.

Debt” for more information.

Cash Flows for the Nine Months Ended March 30, 2024

As of March 30, 2024, our combined balance of cash and cash equivalents and restricted cash decreased by $52.5 million to $463.1 million from $515.6 million as of July 1, 2023.

During the nine months ended March 30, 2024, Cash provided by operating activities was $90.2 million, consisting of net loss of $4.1 million adjusted for non-cash charges (e.g., depreciation, amortization, stock-based compensation and other non-cash items) totaling $77.5 million, including changes in deferred tax balances, and changes in operating assets and liabilities that used $16.8 million.

Changes in our operating assets and liabilities related primarily to a decrease in accounts receivable of $17.4 million due to collections outpacing billings, an increase in accrued expenses and other current and non-current liabilities of $14.6 million primarily due to expenses related to the proposed acquisition of Spirent, a decrease in inventory of $6.7 million, a decrease in other current and non-current assets of $3.7 million and an increase in income taxes payable of $2.3 million.

These were offset by a decrease in deferred revenue of $15.7 million primarily due to timing of support billings and project acceptances, a decrease in accrued payroll and related expenses of $8.1 million due primarily to lower variable expenses and reduced headcount from restructuring activities and a decrease in accounts payable of $4.1 million driven by timing of purchases and related payments.

During the nine months ended March 30, 2024, Cash used in investing activities was $27.2 million, primarily resulting from $15.7 million used for capital expenditures and $14.1 million net purchases of short-term investments offset by $2.6 million proceeds from sales of assets.

During the nine months ended March 30, 2024, Cash used in financing activities was $115.3 million, primarily resulting from $96.4 million to retire 2024 Senior Convertible Notes upon maturity, $11.0 million in withholding tax payments on the vesting of restricted stock and performance-based awards, $10.0 million cash paid to repurchase common stock under our share repurchase program and $4.0 million paid for acquisition related liabilities.

Cash Flows for the Three Months Ended September 28, 2024

As of September 28, 2024, our combined balance of cash and cash equivalents and restricted cash decreased by $3.7 million to $478.1 million from $481.8 million as of June 29, 2024.

During the three months ended September 28, 2024, Cash provided by operating activities was $13.5 million, consisting of net loss of $1.8 million adjusted for non-cash charges (e.g., depreciation, amortization, stock-based compensation and other non-cash items) totaling $20.2 million, including changes in deferred tax balances, and changes in operating assets and liabilities that used $4.9 million.

Changes in our operating assets and liabilities related primarily to a decrease in accounts receivable of $13.2 million due to collections outpacing billings, a decrease in inventory of $2.9 million and an increase in income taxes payable of $2.6 million.

These were offset by a decrease in accrued expenses and other current and non-current liabilities of $7.5 million, a decrease in accrued payroll and related expenses of $5.1 million due primarily to timing of payroll, reduced headcount from restructuring activities and lower vacation accrual due to higher usage, a decrease in deferred revenue of $4.6 million primarily due to timing of support billings and project acceptances and a decrease in accounts payable of $4.0 million driven by timing of purchases and related payments.

During the three months ended September 28, 2024, Cash used in investing activities was $11.5 million, primarily resulting from $7.3 million used for capital expenditures, $4.7 million net purchases of short-term investments and $3.0 million investment in non-marketable equity security offset by $3.5 million in proceeds from the sale of assets.

During the three months ended September 28, 2024, Cash used in financing activities was $21.0 million, primarily resulting from $16.4 million cash paid to repurchase common stock under our share repurchase program and $7.3 million in withholding tax payments on the vesting of restricted stock and performance-based awards.

These were offset by $2.7 million in proceeds from the issuance of common stock under our employee stock purchase plan.

Share Repurchase Program

During the nine months ended March 30, 2024, we repurchased 1.0 million shares of our common stock for $10.0 million pursuant to our 2022 Repurchase Plan.

As of March 30, 2024, the Company had remaining authorization of $224.8 million for future share repurchases under the 2022 Repurchase Plan.

During the three months ended September 28, 2024, we repurchased 2.0 million shares of our common stock for $16.4 million pursuant to our 2022 Repurchase Plan.

As of September 28, 2024, the Company had remaining authorization of $198.4 million for future share repurchases under the 2022 Repurchase Plan.

Refer to “Note 15.

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Contractual Obligations

There were no material changes to our existing contractual commitments during the third quarter of fiscal 2024.

There were no material changes to our existing contractual commitments during the first quarter of fiscal 2025.

Off-Balance Sheet Arrangements

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plan is fully funded, and the other German plans, which were initially established as “pay-as-you-go” plans, are unfunded.

As of March 30, 2024, our pension plans were under-funded by $50.6 million since the post-retirement benefit obligation (PBO) exceeded the fair value of plan assets.

As of September 28, 2024, our pension plans were under-funded by $53.1 million since the post-retirement benefit obligation (PBO) exceeded the fair value of plan assets.

Pension plan assets are managed by external third parties and we monitor the performance of our investment managers.

As of March 30, 2024, the fair value of plan assets had increased approximately 4.5% since July 1, 2023, our most recent fiscal year end.

As of September 28, 2024, the fair value of plan assets had increased approximately 7.1% since June 29, 2024, our most recent fiscal year end.

We are also responsible for the non-pension PBO assumed from a past acquisition of $0.3 million.

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Increases in the discount rate tend to have the opposite effect.

We estimate a 50-basis point decrease or increase in the discount rate would cause a corresponding increase or decrease, respectively, in the PBO of approximately $4.0 million based upon data as of July 1, 2023.

Goodwill Impairment

Goodwill is recognized and initially measured as the excess of the purchase price paid over the net fair value of assets acquired and liabilities assumed in a business combination.

Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill.

The Company tests goodwill at the reporting unit level for impairment during the fourth quarter of each fiscal year, or more frequently if events or circumstances indicate that the asset may be impaired.

First, we assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a quantitative goodwill impairment test comparing the fair value of the applicable reporting unit with its carrying value.

If the estimated fair value exceeds book value, goodwill is considered not to be impaired.

However, if the fair value of the reporting unit is less than book value, then goodwill will be impaired by the amount that the carrying amount of goodwill exceeds the fair value.

As part of the annual impairment test, the Company performed a quantitative assessment of goodwill impairment for all reporting units during the fourth quarter of fiscal 2023.

The Company estimated the fair value of each reporting unit by applying a combination of the income approach and the market approach.

The income approach used discounted future cash flows in which sales, operating income and cash flow projections were based on assumptions driven by current economic conditions.

In developing these assumptions, we relied on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data.

The market approach was based on trading multiples of companies comparable to each reporting unit and analysis of recent sales of comparable entities.

We corroborated the fair value estimates by comparing the sum of the fair values of the reporting units and corporate net assets to VIAVI’s market capitalization as of the valuation date.

The Company believes the assumptions used in the goodwill impairment test were reasonable, but future changes in the underlying assumptions could occur due to the inherent uncertainty in making such estimates.

Further declines in the Company’s operating results due to challenging economic conditions, an unfavorable industry or macroeconomic development or other adverse changes in market conditions could change one of the key assumptions the Company used in the goodwill impairment assessment, which could result in a further decline in fair value and require the Company to record an impairment charge in future periods.

Based on our testing, the fair value of each of the Company’s reporting units was at least two times the carrying value, and therefore no impairment was identified.

Quantitative and Qualitative Disclosure About Market Risks

The Company’s market risk has not changed materially from the foreign exchange and interest rate risks disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis